Another option for your betting plan to use is proportional betting. According to this type of bet plan, your bet will be the percentage of the total number of funds at the rate of return. The basis for this plan is based on the Kelly criterion. We will discuss in more detail below.
The Kelly criterion was developed by a Bell Labs employee named J.L. Kelly Jr. This formula has found many applications in sports betting as well as financial management. The goal of the formula is to help you increase your bet if you win and reduce the bet size if you lose.
Kelly’s actual formula is like this: (BP-Q) / B
B = The decimal odds of the dealer minus one.
P = Your probability of success.
Q = Your probability of failure.
To help illustrate this criterion, consider the following example. Let’s assume you’re betting with a friend in a coin toss game. Your friend gives you 2 odds when the coin falls into the tail and tells you that the coin is a bit misleading for the tail. He tells you that a coin with 54% chance will fall on the head. Using this information, how much money should you put in your budget for this bet?
Using Kelly’s formula, the ratio will look like this: (1 * .54 – .46) / 1 = 8.
That means that based on information, you should place 8% of your budget on that level. The great thing about the Kelly criterion is that it will adjust everything for you based on your chances of winning. Using the same coin flip example, your bet rate will increase by 20% if the coin falls in the tail for 60% of the time. Conversely, if the coin only falls into the tail 51% of the time, you will only bet 2% of your budget.
Using Kelly’s formula will help reduce your risk compared to other systems described above. The reason for this is that this formula takes into account your odds. Although other systems are great, they don’t take into account your advantage of making decisions about your next bet.